Instrument Makers Prosper in Q3

Major analytical instrument and laboratory supply companies weathered the economic storm quite well in the calendar-year third quarter. Dionex, Thermo Fisher Scientific, Varian and Waters each noted some order delays due to economic conditions, but in general companies stated that business was unaffected. However, the downturn in equity and capital markets worsened in mid-September, the tail end of the third quarter. Thus, fourth quarter results should provide a better indicator of the initial effects of the economic crisis on instrument and laboratory product sales. In addition, Invitrogen benefited from an extra day of sales in the quarter and Varian noted an extra week of sales.

Total quarterly sales for 10 of the 13 businesses discussed on pages 9–11 grew 9.1%. Five companies reported double-digit sales growth. On a currency-neutral basis, quarterly sales grew in double digits for three businesses: Invitrogen, PerkinElmer Life and Analytical Science (LAS) and Varian Scientific Instruments (SI). Excluding currency effects, sales for the 10 firms increased 6.4%. Sales figures for Horiba, Mettler-Toledo and Oxford Instruments are excluded from the tables due to their reporting periods or unavailable data.

Operating profits also expanded at a double-digit pace, growing 22.1% for the 10 companies in the tables. Nine of the 10 companies reported double-digit growth in operating profits. Applied Bisosystems, Bio-Rad Laboratories Life Science (LS) and Waters reported increases in operating profits of more than 40%. Bruker’s operating profit plummeted 50% and the company announced a new round of cost cutting. PerkinElmer and Thermo Fisher Scientific also reduced headcount during the quarter.

Not surprisingly, the highlight of the quarter was, once again, sales in Asia, particularly China, as several companies, including Applied Biosystems and Bio-Rad LS, reported robust growth in the region. US sales were weak for the most part, with Waters and Oxford Instruments, for example, noting slower growth. European sales growth were also mixed, but with stronger growth than the US for most companies. In contrast, Invitrogen reported strong growth in both regions. Rest of world regions provided high growth rates for Thermo Fisher Scientific Life and Laboratory Sciences (LLS), Varian SI and Waters.

Companies reported steady demand across most end-markets. Academic and government markets were among the most robust, according to Agilent Bio-Analytical Measurement (BAM) and Waters. Several companies, including Agilent BAM and Thermo Fisher Scientific LLS, highlighted growth in the food safety market, and several noted the latest melamine scare in particular as stimulating demand. Industrial market growth stayed strong for companies such as Dionex and Thermo LLS.

Capital spending by large pharmaceutical companies remained constrained, although PerkinElmer noted good growth in this market for new products and Agilent reported double-digit growth for pharmaceutical sales. Despite the announcements of downsizing at several large pharmaceutical companies, instrument makers noted no major effects on demand. Demand from biotech and CROs remained robust.

Slowing sales for selected product lines impacted certain companies this quarter. Applied Biosystems’ sales growth was hurt by slower MS demand, while Bruker noted slower sales of magnetic resonance imaging systems. Bright spots for companies included Invitrogen and PerkinElmer LAS’s sales of products for cellular research, Agilent’s microarray business, Waters’s TA Instrument business and Applied Biosystems’ Ambion business.

The quarter also marked the fiscal year-end for Agilent BAM and Varian SI, which both recorded double-digit growth for the fiscal year. Companies’ write-ups are based on financial reports, SEC filings and conference calls.

Fiscal fourth-quarter revenues for Agilent Technologies Bio-Analytical Measurement (BAM) grew 10.4% to $616 million to account for 42.8% of Agilent sales. Acquisitions and currency added 2.4% and 2.0% to revenue growth, respectively. Excluding semiconductor-related business, revenues grew 13%, or 5% organically. Orders climbed 8.1%, 6% excluding acquisitions, to $617 million. Sales to Europe, the Americas and Asia grew 2%, 12% and 20%, respectively. Adjusted operating profits climbed 22.6% to $130 million, and gross margins improved 100 basis points to 56% of sales.

Revenue for BAM Life Sciences rose 17%, 10% excluding acquisitions, to account for 44.8% of BAM sales. The academic and government market grew 22%, driven by a 40% rise in microarray sales. Pharmaceutical and biotech sales grew 15%, 7% organically, largely due to increased funding for pharmaceutical research in China. The company reported weaker pharmaceutical sales in the US and India. Sales of GCs, LCs, LC/MS and consumables each climbed over 10%. Chemical Analysis revenue improved 5% to make up 55.2% of BAM sales, led by food safety and petrochemical markets, which grew 14% and 15%, respectively. Sales in the petrochemical market increased 15%, environmental sales were up 1% and material science revenue fell 30% due to the laser interferometer business. Fiscal full-year BAM sales climbed 14.5% to $2,295 million, while adjusted operating profits grew 13.1% to $431 million. For fiscal 2009, Agilent anticipates 5% revenue growth for BAM.

Applied Biosystems’ fiscal fist-quarter revenues grew 6.4% to $533.1 million, including 2.6% growth from currency transactions. Instrument and Consumables revenues improved 1.5% and 7.1% to represent 36% and 43% of sales, respectively. Other Sources of revenue grew 14.4% to account for 21% of sales and benefited from a one-time payment for a terminated contract with the US Army. US sales grew 1.3% to account for 42.5% of total sales, while European sales rose 7.7%, 2% on a currency-neutral basis, to make up 33.5% of sales. Asia Pacific and other market sales grew 12.6% and 22.8%, including 3% and 6% growth from currency effects, to make up 19.0% and 5.0% of sales, respectively. Excluding Japan, sales to Asia Pacific jumped 38%. Adjusted operating income climbed 41.2% to $112.8 million, and gross margins improved 464 basis points to 60.5% of sales due to lower cost of goods, primarily for enzymes, and product mix.

Real-Time PCR/Applied Genomics revenue was driven by sales of human identification kits, assay products, and RNA kits and reagents. Core PCR revenue benefited from royalty revenue. In DNA Sequencing, growth in sales of SOLiD systems was partially offset by lower consumables as customers transition to next-generation sequencing. Mass Spectrometry sales, especially sales of API triple quad and Q TRAP systems, were affected by slower pharmaceutical sales, increased competition and purchase delays in anticipation of new products. MS sales were down except in Asia Pacific outside of Japan, while sales to applied markets and for proteomics were flat.

Quarterly revenues for Bio-Rad Laboratories Life Sciences (LS) grew 9.7%, 4.4% organically, to $156.9 million to make up 35.5% of sales. Leading revenue higher were sales of chromatography, protein expression products, assays, PCR instruments and reagents. US sales were tepid, but demand in Asia Pacific and emerging markets was strong. Lower demand for capital equipment moderated growth. Excluding BSE sales, LS revenue grew 5.7% on a currency-neutral basis. LS operating profits soared 78.8% to $9.3 million due to lower operating costs, product mix and operating efficiency.

Bruker’s third-quarter revenues rose 0.1% to $242.1 million, but declined 5.5% on a currency-neutral basis. Product sales declined 2.7% to represent 86.7% of sales, while service and other revenue grew 23.3% and 28.7% to make up 12.7% and 0.6% of sales, respectively. Adjusted operating income fell 50.2% to $15.1 million due to higher R&D and SG&A expenses as a percentage of sales following the merger with BioSpin (see IBO 12/15/07). Gross profit margin declined 51 basis points to 45.5% of sales. BioScience sales grew 4.5% to $141.2 million, but declined 1.6% on a currency-neutral basis. X-ray system sales were lower, but demand rose for molecular spectroscopy and chemical detection systems. Segment operating profits fell 36.8% to $8.4 million due to lower gross margins, pricing pressure and higher operating costs. BioSpin revenue fell 5.0%, 9.5% excluding currency effects, to $112.5 million due to lower sales of magnetic resonance systems. Segment operating income fell 43.1% to $10.0 million primarily due to lower sales. Bruker anticipates cost savings of more than $12 million by mid-2009.

Dionex’s fiscal first-quarter revenues grew 13.4%, 7.5% on a currency-neutral basis, to $93.4 million. Product sales climbed 13.7% to account for 87.6% of sales. Installation and training services revenue improved 4.6%, while maintenance revenue rose 12.6% to represent 2.8% and 9.6% of sales, respectively. Ion chromatography sales rose in the mid-teens, while HPLC sales grew in the mid-single digits. Life science and environmental sales grew 3%–4% and 5%–6%, respectively. Chemical/petrochemical sales climbed in the low to mid-teens, while electronic/power and food/beverage sales grew roughly 20% and 25%, respectively. Sales to the environmental market increased 30%.

Sales in North America, Europe and Asia Pacific grew 0.9%, 14.8% and 24.8%, or 0.6%, 4.0% and 20.0% on a currency-neutral basis, to make up 26.9%, 42.7% and 30.4% of revenues, respectively. Operating profits rose 22.0% to $19.5 million. Gross profit margins jumped 190 basis points to 67.1% of sales due to product and geographic mix. Due to changes in currency-exchange rates, Dionex lowered its full-year revenue growth outlook by five percentage points to 3%–4% and sales of $385–$393 million. Fiscal second-quarter sales are predicted to grow 3% to $100–$102 million.

Third-quarter revenues for Horiba’s Analytical Instruments and Systems segment grew 3.9% to ¥9,366 million ($87.0 million = ¥107.64 = $1) from ¥9,014 million ($76.6 million = ¥117.75 = $1) to account for 27% of total sales. Operating profits climbed 15.4% to ¥473 million ($4.4 million). The company anticipates fourth-quarter revenues to decline 15.8% to ¥9,662 million ($90.3 million) due to increased price competition and lower capital spending from the private sector. Full-year revenues for the unit were revised downward by 5% to approximately ¥38,000 million ($358 million).

Third-quarter sales of Mettler-Toledo’s Laboratory segment increased 9% to account for 43% of total company revenues or approximately $219 million. For 2009, the company anticipates Laboratory product sales to grow 3%–5%.

Oxford Instruments’ sales for the first-half of the year ended September 30 increased 18.5% to £92.8 ($178.5 million = £0.52 = $1), or 12% in constant currency. Acquisitions and currency transactions contributed roughly 8% and 7% to revenue growth, respectively. Adjusted operating profits climbed 75.0% to £3.5 million ($6.7 million), and gross margins improved 100 basis points to 41.2% of sales. The Analytical business grew 27.6% to £63.3 million ($121.7 million), with operating profits rose 92.9% to £5.4 million ($10.4 million). The Superconductivity segment grew 2.8% to £29.5 million ($56.7 million), while its operating profits declined to a loss of £1.9 million ($3.7 million) from a profit of £0.6 million ($1.2 million = £0.50 = $1). The company cited some weakening in demand, particularly in the US.

Invitrogen’s third-quarter sales grew 14.8% to $361.7 million, including 3.5% growth from currency transactions and 1.2% growth from acquisitions. Adjusted operating profits gained 26.2% to $86.1 million, while gross margins jumped 478 basis points to 60.3% of sales. Sales to the Americas, Europe and Asia Pacific increased 11%, 8% and 11%, respectively. Excluding the Applied Biosystems acquisition, fourth-quarter revenues are expected to grow in mid-single digits organically. BioDiscovery revenue climbed 13.2%, 9.5% organically, to $249.4 million, led by double-digit sales growth for both molecular biology and cellular analysis products. Revenue growth also benefited from product introductions, increased prices and higher royalty revenue. BioDiscovery’s adjusted operating profit jumped 28.9% to $72.2 million, while gross margins improved 230 basis points to 71.5% of sales due to higher licensing revenue. Cell Culture Systems revenue grew 18.7% to $112.3 million, including 4.0% growth from acquisitions and 3.4% growth from currency transactions. Organic sales were led by double-digit growth for production media and sera revenues, while cell culture research revenue grew in the low double digits. Cell Culture Systems adjusted operating profit climbed 5.0% to $22.5 million, while gross margins declined 90 basis points to 52.5% of sales due to a shift in product mix.

Revenues for PerkinElmer Life and Analytical Sciences (LAS) grew 16.9% to $373.4 million, accounting for 73.9% of total sales. Acquisitions and currency transactions contributed approximately 7% and 2% growth, respectively. Revenue for the Bio-discovery segment grew in the mid-teens led by strong sales of cellular imaging systems and reagents, as well as improved sales of lab automation instruments and detection equipment. Genetic Screening revenue, which accounted for nearly half of LAS revenue growth, grew in double digits, primarily due to acquisitions. Laboratory Services revenue grew in the low teens, while Analytical Sciences revenue improved in the high single digits driven by strong demand in emerging markets, offset by slower North American and European markets. LAS adjusted operating profits grew 25.1% to $49.9 million. The company initiated several reorganization efforts, including the closing of facilities and workforce reductions in order to focus on higher growth product areas. For the year, total company revenues are forecasted to grow 6%–8% organically.

Thermo Fisher Scientific Analytical Technologies’ (AT) revenues grew 5.9% in the third quarter to $1,086.5 million, including 2.2% growth from currency transactions and 1.4% growth from acquisitions, to account for 42% of sales. Weak demand at the end of the quarter curtailed revenue growth by approximately 1.5%. Demand from the pharmaceutical market was lower for analytical instrumentation and bioprocessing products. However, demand from the biotech, CRO, academic, food, mining and materials markets was stable. Revenue growth benefited from product introductions, primarily for scientific instrument, diagnostics and life science research products. AT adjusted operating income grew 15.4% to $229.2 million, while operating margin improved 173 basis points to 21.1% of sales due to improved operating efficiencies. The company reduced its 2008 revenue growth forecast by approximately 1.4% to 7%–8% due to uncertain visibility and changes in currency-exchange rates. Fourth-quarter sales for the company are expected to grow 4%.

Fiscal fourth-quarter revenues for Varian Scientific Instruments (SI) grew 14.1% to $236.5 million to make up 83.7% of sales. Acquisitions contributed roughly 2% to revenue growth, while the extended 14-week quarter added 3.5%–4% growth. Demand for environmental, energy and life science applications remained strong, particularly in Asia Pacific and Latin America. Consumables and services revenues accounted for approximately 33% of total sales. SI’s adjusted operating profit climbed 18.2% to $30.1 million, while operating margins improved 45 basis points to 12.7% of sales. Full-year SI sales climbed 10.1%, approximately 9% organically, to $838.7 million to account for 82.8% of sales. Adjusted operating profit grew 4.9% to $97.6 million, while operating profit margin fell 58 basis points to 11.6% of sales due to restructuring charges. The company remains focused on improving margins by relocating manufacturing to lower cost regions, consolidating operations and increasing outsourcing capabilities. Varian anticipates flat first-quarter revenue growth and full-year revenue growth of 2%–4%.

Waters’s third-quarter revenues climbed 9.5% to $386.3 million, including 3.0% growth from currency effects. Product sales grew 7.4% to account for 71.8% of sales, while service revenue improved 15.3% to make up 28.2%. Pharmaceutical sales rose 3%, government and academic sales grew 28%, and industrial sales increased 15%. US sales improved 1%, while sales to Europe, Asia and Japan increased 7%, 11% and 10% on a currency-neutral basis, respectively. Adjusted operating income improved 40.6% to $100.4 million, while gross margins climbed 255 basis points to 58.9% of sales.

Waters Division sales grew 8.8% to $344.1 million, including 3% growth from currency effects, driven by double-digit growth for industrial sales, but pharmaceutical sales were flat. TA Division revenue grew 15.7% to $42.2 million. Acquisitions and currency transaction accounted for 4% and 2% of revenue growth, respectively. Waters expects fourth-quarter revenues to grow 4%, 6% organically, to $454 million and 10% revenue growth to $926 million for the year.

Applied Biosystems FY09 Q1

Q1 Growth % of Total

DNA Sequencing 8.5% 26%

Real-Time PCR/Applied Genomics 12.6% 38%

Mass Spectrometry -9.8% 21%

Core PCR and DNA Synthesis 16.5% 10%

Other Product Lines 10.2% 5%

Bruker FY08 Q3

BioSciences % Rev. Growth % Segment Rev.

System 0.9% 72.0%

Other System 10.6% 6.1%

Aftermarket 16.3% 21.9%


System and Wire -8.1% 72.3%

Other System -39.3% 1.8%

Aftermarket 9.5% 25.9%

Waters FY08 Q3

Waters Div. % Rev. Growth % Segment Rev.

Instrument Systems 6.2% 54%

Chemistry Consum. 8.8% 17%

Service 14.1% 29%


Instrument Systems 12.1% 78%

Service 30.5% 22%

Chart: Q3 2008 Revenue Growth ($US)

Bruker 0.1%

Thermo Fisher Scientific (AT) 5.9%

Applied Biosystems 6.4%

Waters 9.5%

Bio-Rad (LS) 9.7%

Agilent (BAM) 10.4%

Dionex 13.4%

Varian (SI) 14.1%

Invitrogen 14.8%

PerkinElmer (LAS) 16.9%

Chart: Q3 2008 Adjusted Operating Profit Growth ($US)

Bruker -50.2%

Thermo Fisher Scientific (AT) 15.4%

Varian (SI) 18.2%

Dionex 22.0%

Agilent (BAM) 22.6%

PerkinElmer (LAS) 25.1%

Invitrogen 26.2%

Waters 40.6%

Applied Biosystems 41.2%

Bio-Rad (LS) 78.8%

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